Wage Inequality on the Rise: The Role of Workers' Characteristics

Guillermo Alves

Matías Brum

Mijail Yapor

Abstract

In recent decades, wage inequality has been an important factor behind the rise in income inequality around the world. The leading explanation for increased wage inequality has been the increasing returns to human capital, usually attributed to changing technology and globalization. This article studies the rise in wage inequality in Uruguay, a small open developing economy. In contrast with popular explanations, our results highlight a strong and gradual inequalizing effect of changes in workers’ characteristics, such as increased schooling and age, decline of public sector employment and contraction of employment in manufacturing together with increased employment in services.